Time Value of Money
- Is a dollar today worth more than a dollar tomorrow? Yes
- Why? Opportunity cost and inflation, this it the reason for charging and paying interest
Symbols and Notations
- v = future value of $
- p = present value of $
- r = real interest rate (nominal interest rate - inflation rate)
- n = # of years
- k = # of times interest is credited throughout the year
Forms
- Simple Interest Form- v = (1+r)^n x p
- Compound Interest Form- v= (1+ (r/k))^(nk) x p
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